The Security Of Blockchain Will Revolutionize The Title Industry
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Blockchain, the software on which bitcoin is based, is being billed as the biggest technology disruptor to hit commercial real estate in years, despite its expensiveness and high barrier to entry.
One area where blockchain tech could have an immediate impact is by eliminating the paper trail involved in transferring deeds and titles.
International Blockchain Real Estate Association founder Ragnar Lifthrasir said that blockchain’s open source, peer-to-peer database system is the most secure option for transferring properties, which are still primarily transferred using paper deeds.
The paper trail left by documents like property titles and identification can be counterfeited, opening the door to rampant fraud. Blockchain can transfer digital assets, peer-to-peer, without third-party approval. Lifthrasir’s firm, velox.RE, creates blockchain deeds by adding data to a fraction of bitcoin, making it a “colored coin” representing a property. These blockchain deeds can convey real estate without being counterfeited.
To test the possibilities of how blockchain can record property transfers, velox.RE helped develop a pilot program with the Cook County Recorder of Deeds last September that will end this month. The two main objectives of this program: conveyance of property, and making a public record of transfer with blockchain. Lifthrasir said that the biggest question posed by the pilot program was if it could be done legally using existing laws or if new laws needed to be passed. Working with county officials and lawyers throughout the program’s length, it was discovered that digital signatures, contracts and identification were covered under existing laws.
Avi Spielman, founder of Joon Properties in Nashville, Tennessee, based his master's thesis at MIT on the probable uses of blockchain in real estate and said that since blockchain is, at its core, an open source software system, government groups will need to figure out what is permissible for government use.
Spielman, who worked in the government in Tennessee's Davidson County while writing his thesis, found local officials to be knowledgeable about how blockchain could be a game-changer for real estate. Spielman found that and that people in the title industry were exploring adopting it as a tool well before the software became a buzzword.
But Spielman cautions that blockchain will not immediately eliminate the need for third-party middlemen. The software is still susceptible to GIGO — garbage in, garbage out — and title searchers will still be needed to correct ledgers. Investigators will always be needed to determine the authenticity of a record.
Where Spielman sees blockchain reaping immediate benefits is in recording data. It can streamline the process, make it more accurate and allows for a decentralized database system for groups working off the same info. Having a "living copy" of a property transfer ledger is appealing to governments in major markets. This tech also holds appeal in developing nations where there is rampant corruption. It would be more difficult to change a ledger of ownership if the data is connected to a greater density of nodes — a hacker would have to change the majority of a system with individual attacks to change the ledger. In a isolated database system, there is only one record to change.
Lifthrasir said the main fear of governments embracing blockchain is in using software that is not controlled by a specific entity. He is confident that once officials examine the software and see that it is safe, they will realize that having an open source, public blockchain is the best option.
Lifthrasir said the biggest barrier to commercial real estate adoption of blockchain on a wide scale remains firms' preference to cling to proprietary data. That is slowly changing. Lifthrasir said that velox.RE can assist major real estate firms to monetize data, make assets more liquid and increase the in-house transparency of that data. To do this, velox.RE uses other open sources besides blockchain, and has vertically integrated several applications.